In the first of this two part CIO webinar series ‘Driving business success with true enterprise applications’, a group of leading tech leaders heard from DXC Technology, customer Ventia and analysts Ecosystm about the challenges and benefits of “Overcoming barriers to application modernisation with SAP.

As we all know, enterprise applications were only really put on the c-level agenda when organisations had outgrown their legacy systems.

But as the hyper-competitive digital landscape continues to evolve, and with it ever more powerful and innovative capabilities in the cloud, businesses really need to make deployment of enterprise applications a strategic priority.

For many organisations, legacy technologies are actually impeding their efforts to modernise, while they face increasing threats from new-entrant competitors unburdened by the past.

That said, not all legacy is bad, with the onus on CIOs and other technology leaders to derive value from existing investments where possible.

In fact, Alan Hesketh, principal analyst with Ecosystm defines ‘legacy’ as anything you turned on yesterday.

“Because once in production, those things just increase the legacy that you have in place and that you need to be able to manage – and every organisation really wants to focus on new activities, not the things that they’ve actually done previously,” he says.

“And there are now so many alternative sources of application services, that with each component that you implement – and shadow IT is a particular challenge here – increases the complexity of your environment. And as your complexity increases, so do dependencies.”

The upshot, Hesketh stresses, is unless organisations figure out how to address this complexity and develop more effective application frameworks, they will see their lead times for delivering products and delivering value balloon.

Merging app ecosystems

The challenges of managing sprawling application ecosystems are especially acute during major M&A projects, something Karen O’Driscoll, group executive for digital services with Ventia and Michelle Sly, business development leader with DXC Technology can certainly attest to.

Back in late 2019, the already formidable Australian infrastructure services company agreed to merge with rival Broad Spectrum Infrastructure to form a true powerhouse generating more than $5 billion in annual revenues, providing operational and maintenance services to a wide range of private sector and government clients and their customers. Ventia itself was formed back in 2015 through the merger of latent contractor services, Thiess Services and Vision Stream, further underscoring the integration challenge.

“[With the] the historical acquisitions and mergers of companies, and the way in which the business was structured, there was quite a lot of work to do to be able to bring the platforms and the systems together, and also to standardise those across multiple divisions and operating entities,” explains Karen O’Driscoll, digital services executive with Ventia.

And deciding that this would happen within 12-18 months introduced a whole new degree of difficulty which led to an “awkward silence” followed by questions like “you want to get it done by when?”.

“Whilst we were excited about the opportunity, [we were] pretty daunted .. around the timeline that we wanted to get this done in.”

O’Driscoll and her team opted for the tighter deadline in a bid to reduce costs and ultimately deliver value faster. But the board took some convincing given the task was much more than a ‘lift and shift’.

“You know, there’s a lot of change management required there as well. And a lot of things that we knew that we could break, if we went so fast that we weren’t careful about what we were doing.”

One plus one

The project was run according to the mantra ‘one plus one equals one’.

So we wanted to run the combined organisation at the same cost as we ran one organisation from an IT overhead perspective,” O’Driscoll adds.

“There was a big objective to be able to quickly deliver the value of the integration of the two companies.”

Ventia had also listed on the stock exchange part way through the program, adding further pressure on the team to succeed.

The strength of its partnership and natural cultural fit with DXC Technology was evident at the start, becoming even more apparent as the project progressed, requiring increasingly intense “storming sessions” during which frank discussions often occurred, with more than a few disagreements along the way.

Michelle Sly, business development lead at DXC Technology, recalls a degree of discomfort at the level of risk Ventia appeared to be taking on.

“From our perspective it was very complex, and the aggressive timeframes were quite scary initially.”

“But Ventia knows their business far better than another supplier does and they probably looked at DXC thinking ‘you’re a little bit risk averse’.”

With so much at stake it was agreed that DXC would commission an independent review.

“That independent review gave us other options, and the ability to have very open and transparent conversations with Ventia, which then meant they could see where we were coming from,” Sly notes.

No project is the same, with large undertakings like this underscoring the importance of having a genuine partnership to properly navigate all of the many moving parts, O’Driscoll notes. “You can’t force it – the partnership approach enabled us to pivot and drive to a successful outcome”.

In addition to bringing a strong sense of collaboration to the table, she adds that DXC also brought a highly experienced, disciplined team able to quickly come to grips with the Ventia and Broadspectrum businesses. Furthermore, M&As are also in DXC’s DNA, informing part of their extensive suite of tools, templates and overall knowledge-base developed over many years.

For Ventia, while DXC did seem to bring a more conservative approach to the table, its decision to go with them was nevertheless somewhat unorthodox compared with the alternative of one of the big accounting firms.

Working together the two companies were able develop more agile working teams and processes that led to real value being delivered incrementally throughout the project. And this  was key to maintaining support from the executive.

“What we wanted to do is to be able to not call something that we couldn’t make it until we really couldn’t make it,” O’Driscoll explains.

“DXC would tell us a couple of months before, ‘we’re not sure we’re going to make it’ and we’re like ‘we don’t have to make that decision yet’.”

“And so we pushed DXC to not make those decisions too early in the programme and to actually go further along with us making decisions on the way until we got to a point in which we could go with that phase or wherever we were. And actually every phase, we were able to achieve on time.”

SAP

SAP has given CIOs another reason to consider moving to the cloud: rising support costs for on-premises software.

The company will raise the cost of its SAP Standard Support, SAP Enterprise Support, and SAP Product Support for Large Enterprises contracts for existing customers from January 1, 2023. Prices will rise in line with customers’ local consumer price index (CPI), with the increases capped at 3.3%. The changes will come into effect when customers renew their annual support contracts for the second time, affecting those who signed up before January 1, 2021.

The ERP vendor laid out its plans in a document entitled “Adjustment of SAP Support Fees,” which it finalized at the end of August.

SAP blamed the change on the higher costs of energy, labor, and third-party services, which are affecting the company just as many other businesses. It said it had kept the price of its support offerings broadly stable for almost a decade, even waiving adjustments during the pandemic.

The price increases only relate to support contracts for existing on-premises software, and the list price for support for new purchases of on-premises software will not increase, SAP spokesman Martin Gwisdalla told CIO.com in an email, meaning that users of SAPs cloud software and services will not be affected by these particular increases.

However, SAP’s cloud users may not be sheltered from the increases, as the company is also considering ratcheting up the price of its cloud software by 3.3% every year, CEO Christian Klein told German newspaper Handelsblatt in late July.

The German-speaking SAP Users Group, DSAG, is unimpressed with the company’s plans: “It is trying to establish mechanisms here that increase the costs for cloud services far above inflation,” Thomas Henzler, DSAG board member for licenses, service, and support, told CIO.com.” This is absolutely unacceptable and also incomprehensible.” With the service price rise and the threatened increase in cloud prices, SAP’s oldest on-premises customers could find themselves in a bind. SAP has been touting its cloud services as a way to keep licensing, maintenance and hosting costs under control, particularly with its “Rise with SAP” all-in-one offering, and has longstanding plans to move users of its previous software generation, ERP 6.0 and Business Suite 7, to a higher-paying support tier after standard support ends in 2027.

SAP

The rise of business transformation initiatives has IT leaders rethinking the way they evaluate, select, and negotiate technology and IT services deals today. Pivoting away from a serial approach to evaluation and selection, forward-thinking IT leaders are instead employing an integrated sourcing strategy tailored to facilitate business and IT transformations.

Several dynamics are fueling this trend. On the buy side, business executives are looking to transform their ERP, SCM, CRM, HR, and ecommerce platforms to address inadequacies exposed by the COVID pandemic, global supply chain issues, changes in workforce dynamics, and industry-specific opportunities and challenges. At the same time, CIOs are working to reshape the business of IT, driving their organizations to the cloud and to new delivery and operating models.  

On the sell side, vendors have revamped their go-to-market strategies, service offerings, and partnerships. SAP, for example, has launched its RISE offering, including reimagined partnerships with AWS, Google, and Microsoft as well as its consulting partners such as Accenture and IBM to bring a vertically integrated solution to market. Meanwhile, AWS, GCP, and Microsoft are partnering with consultants to present holistic cloud migration and application modernization strategies beyond SAP.

Organizations undertaking business transformations involving SAP in particular are faced with a range of intertwined issues around vendor engagement, evaluation, selection, and negotiation, the interdependencies of which must be understood in order to drive sound decision-making and beneficial outcomes.

Following are eight strategic concerns and imperatives for establishing and executing an SAP transformation primed for success.

1. Choosing SAP S/4HANA RISE vs. perpetual license model

As organizations map their journey from SAP ECC to S/4HANA, they must determine whether SAP RISE or an SAP S/4HANA perpetual license model is the best fit. Key to this decision is understanding the implications of moving from a capital-intensive purchase model to an operating expense model.  

Organizations must also assess whether SAP RISE will deliver on their operational requirements. Many organizations may be reluctant to turn control over to SAP due to prior experiences with SAP HEC, or they may struggle to understand the true scope and services included as part of RISE. Organizations considering SAP RISE must also come to terms with putting a significant amount of their AWS, GCP, or Microsoft Azure spend behind their SAP relationship, versus maintaining a direct relationship with their hyperscaler of choice. Lastly, organizations must also carefully assess the SAP RISE cost and commercial model against the SAP S/4HANA perpetual license model and commercial terms.

2. Establishing an SAP partner strategy

In addition to selecting the SAP platform, organizations must also determine their consulting and implementation partner strategy. Here, several decisions are key, including whether to undertake a Phase 0 initiative to determine objectives and scope, as well as whether this phase should be awarded as a sole source event or as part of a competitive bid process.

Subsequent to Phase 0, organizations must determine early whether they will seek partners for the design, build, and deploy phases of the program. Organizations will be challenged with building a plan that drives the timeline necessary to achieve business objectives while employing a sourcing strategy that maximizes insights that can be obtained from the market via a competitive bid process. This is critical in today’s market given current levels of attrition, inflation, and demand for high-end consulting resources. A final consideration is devising a strategy with respect to the evaluation, selection, and award of any non-SAP cloud migration and application modernization support.  

3. Re-examining hyperscaler partnerships

Organizations must also re-evaluate their cloud strategy. In addition to determining their long-term infrastructure support strategy for SAP, organizations are also likely to be moving SAP workloads to the cloud, retiring certain applications, or determining which applications should remain on premises or in a hosted environment. This would entail an evaluation of AWS, GCP, and Microsoft, as well as the possible undertaking of a multicloud strategy, a preferred/challenger vendor model, and an approach to addressing the short- and long-term requirements of these relationships.

For example, many organizations that are in the process of making commitments to Microsoft Azure, or exceeding the commitments previously made, need to determine whether they’re going to open up the entire Microsoft relationship to renegotiation. In addition, organizations need to evaluate the role of the hyperscaler in supporting the migration effort as well as the associated investments they are willing to make to support not only the SAP migration but the non-SAP migration. Millions of dollars are on the table to be captured or potentially wasted if orchestration of the hyperscaler evaluation, selection, and negotiation is not well coordinated with the corresponding workstreams.

4. Defining a future managed service strategy

Organizations must also determine not only their managed services strategy but also whether the vendors that are part of this strategy will participate in supporting their future-state SAP environment. Typically, this would include deciding whether the SAP systems implementation provider will provide application maintenance and support (AMS) for the future-state environment versus using an incumbent AMS provider to provide support for the existing environment and future-state environment.

Organizations will also need to understand what complementary infrastructure management services are required to support an SAP RISE environment or an SAP on-premises environment, as they certainly differ. It is essential that an organization’s future managed service partner strategy be considered in concert with determining whether to commit to SAP RISE or a perpetual license.

5. Reassessing existing managed service relationships

In many cases, an organization’s future managed service strategy will require revisiting relationships with existing managed service providers. Such a realignment could necessitate the removal or addition of service towers, removal or addition of workloads, modification of governance and operating models, or renegotiation of service levels, pricing, commercial terms, and conditions. As organizations look to the future, it’s critical that they understand the impact the future strategy will have on existing relationships while maintaining operational continuity during the transformation.

6. Aligning vision and strategy

A key dependency to developing an integrated sourcing strategy is to have a foundational view of the vision and overall strategy of the business and IT transformation initiatives. Unfortunately, in many cases, one aspect of the transformation vision and strategy maybe more advanced than another. For example, organizations highly focused on a business transformation may have engaged a consulting provider to conduct a phase 0 that would enable an S/4HANA implementation. The natural focus of this initiative would include development of the scope in the business case associated with the implementation, but often this means the run side of the vision is given short shrift, placing the organization in catchup mode trying to close the space between the vision for the business transformation and the vision for the IT transformation during the sourcing process, which is certainly not ideal.  

Organizations that establish a view of their business and IT transformation in a holistic fashion are best positioned to develop a sourcing strategy to support that vision.  In addition, organizations that establish their governing principles and objectives are best positioned to empower their team with a framework for decision making.

7. Building an effective team  

Execution of an integrated sourcing strategy is highly dependent on the development of an effective team to support the transformation. The team must comprise a highly capable, collaborative set of individuals representing executive leadership, lines of business, IT, procurement, finance, and legal. This may seem facile advice, but the reality is there are material organizational challenges associated with aligning capable individuals across these different domains.

For example, most procurement organizations are aligned by category of spend such as software and services and they do not have an individual capable of executing across all workstreams except at the highest levels of the organization. In addition, major disconnects can exist between line of business executives, a designated transformation executive, and their IT counterparts with respect to strategy and approach. Even within IT, disconnects between the application team and the infrastructure team can derail a process. These realities must be recognized at the outset of the program as leadership strives to develop a team with large-scale transformational experience that will have the complete support of executive leadership from day one.

Moreover, this team must be empowered to drive the project and the associated vendor evaluation selection and negotiation processes. Their level of credibility must be impervious to the top-down divide-and-conquer tactics and strategies that will be employed by consulting and technology providers and the scrutiny of executive leadership.

8. Establishing an integrated plan 

Too often, there is a disconnect between the expectations of executive leadership, the project team, and the procurement team relative to the overarching timeline and approach to the program. It is essential that the sourcing strategy include a plan that integrates the vendor evaluation, selection, and negotiation process into the project plan. This plan must consider the key milestones and decision points for the entire program, including timing for business case finalization and presentation, timeframes for selection, and program commencement. This plan must also include a well-thought-out approach not only to the timing but the sequencing of the above workstreams in a manner that will enable good decision-making.

For example, presentation and analysis of SAP’s RISE proposal and perpetual license proposal must be coordinated in a manner that coincides with the presentation and evaluation of the hyperscaler proposals and total cost of ownership comparisons. Another example is determining whether the implementation provider is going to have an opportunity to provide associate application means and support. If so, your organization should be leveraging the full opportunity associated with both bodies of work to maximize results. Without this plan, internal misalignment can occur and your organization will be subject to vendors presenting their capabilities and commercial proposals at a time and place of their choosing.

The bottom line is that many organizations are caught flat-footed by implementing a serial approach to selecting technology platforms, consulting and implementation providers, and managed service providers. The reality is the service offerings of technology providers and service providers alike address all three aspects of the technology lifecycle and they must be evaluated in a well-orchestrated and parallel path manner. Organizations that create and execute on an integrated sourcing strategy will be well positioned to make good decisions that set their program up for success, while maximizing their leverage to drive the best-in-class commercial agreements with all providers.

ERP Systems, SAP

Only a minority of companies who are either current SAP customers, or plan to become SAP ERP users, have completed their migration to the company’s S/4HANA system, even though support for its ECC on-premises suite will end in 2030, according to a report from digital transformation services provider LeanIX.

Just 12% of current and intended SAP ERP users responding to a LeanIX survey have completed the transition to S/4HANA, SAP’s cloud-based ERP suite that runs on the HANA in-memory database. The survey polled 100 enterprise architects, IT managers and other IT practitioners across US and Europe.

Another 12% of those surveyed said they intend to migrate, but have postponed the start of their S/4HANA transformation, and 74% of enterprises that were polled are just at the  evaluation and planning phase of their ERP transformation journey, LeanIX reports.

SAP introduced S/4HANA in 2015, expecting its existing base of 35,000 customers (as estimated by Gartner) to convert to the new ERP system.

However, SAP’s earnings disclosure show that S/4HANA has been attracting more new users rather than existing SAP ERP customers. In the last quarter of 2021, about half of all S/4HANA were new users, and for the last two quarters, 60% of S/4HANA users were new SAP customers.

Alignment among teams the biggest challenge

Almost 66% of respondents said that alignment, especially among IT teams, is the biggest challenge when it comes to S/4HANA mirgation.

“This may be due to the size of internal SAP teams: In 63% of the companies, these teams are often made up by more than 50 people,” the report reads.

Further, it states that only very few SAP teams work closely with enterprise architects, who can provide clarity about complex ERP landscapes and their dependencies within the whole software environment in an enterprise.

Only 33% of respondents termed the collaboration between the SAP and enterprise architecture teams in their enterprise as close, and 22% of respondents said that there is no collaboration between the teams at all.

Out of all of the enterprise architects surveyed, only 38% feel sufficiently involved with a transformation project, the report shows.

ERP, software dependencies pose challenges

And due to the lack of collaboration with enterprise architecture teams, almost 50% of respondents say that they see both the definition of the target architecture or roadmap and the identification of dependencies between ERP systems and the surrounding software landscape as challenging for SAP S/4HANA migration.

When asked about the level of transparency into these landscapes, only 20% of respondents said they always have a comprehensive overview or can achieve it in under one month, with 47% of respondents saying that they would need more than three months to provide an overview of all applications and systems, including all ERP solutions and dependencies, used by an enterprise.

Uncertainty over HANA transition period

Despite time for support for SAP ECC coming to an end, there is still uncertainty over the time needed for an enterprise to move to S/4HANA, according to the report.

While Gartner estimates or prescribes a three-to-five-year period as ideal for S/4HANA transition, almost 36% of respondents said that it could take more than three years, followed by 33% respondents estimating that it would take less than two years to upgrade.

However, when asked if the time currently planned for S/4HANA transition would be enough, 37% of respondents say that they would not be able to give an estimate, with 29% saying that they have not adhered to the time planned and overshot it.

Only 33% of respondents estimate that they will be able to complete the ERP transformation according to their planned schedule, the report shows.

Business IT Alignment, Digital Transformation, ERP Systems, IT Management